National Bank of Romania Cuts Monetary Policy Rate

January 7, 2015

Romanian monetary officials released a statement after cutting the benchmark interest rate by another 25 basis points, justifying the move with a forecast of continuing sub-target CPI inflation.  The target is 1.5-3.5%, and the latest reading is 1.26%.

Over the short term, the path of the annual inflation rate is expected to remain below the lower bound of the variation band of the flat target, as a result of the influence exerted by developments in the global oil price and the persistence of the negative output gap. At the same time, there is heightened uncertainty surrounding external developments owing to resurgent geopolitical tensions in the region and to monetary policy stance adjustments by major central banks worldwide.  Against this background, the Board of the National Bank of Romania has decided to lower the monetary policy rate to 2.5 percent per annum from 2.75 percent starting with 8 January 2015, to continue to pursue adequate liquidity management in the banking system, and to keep unchanged the current levels of minimum reserve requirement ratios on liabilities of credit institutions.

From an end-2008 level of 10.25%, the key interest rate was slashed by 400 basis points in 2009-10, 100 bps in 2011-12, 125 bps in the second half of 2013, and by another 125 bps in five increments, the last of which was in November.  In addition to the benchmark interest rate reduction, “the interest rate on the NBR’s lending facility (Lombard) will be lowered to an annual 4.75 percent from 5.25 percent, while the deposit facility rate will remain at 0.25 percent per annum. Based on currently available data, these decisions are meant to ensure price stability over the medium term, along with the sustainable recovery of lending, which is likely to help achieve balanced and lasting economic growth.”

Copyright 2015, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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